Iraq nets handsome profit by dumping dollar for euro

A bizarre political statement by Saddam Hussein has earned Iraq a windfall of hundreds of million of euros. In October 2000 Iraq insisted on dumping the US dollar - 'the currency of the enemy' - for the more multilateral euro.

The changeover was announced on almost exactly the same day that the euro reached its lowest ebb, buying just $0.82, and the G7 Finance Ministers were forced to bail out the currency. On Friday the euro had reached $1.08, up 30 per cent from that time.

Almost all of Iraq's oil exports under the United Nations oil-for-food programme have been paid in euros since 2001. Around 26 billion euros (£17.4bn) has been paid for 3.3 billion barrels of oil into an escrow account in New York.

The Iraqi account, held at BNP Paribas, has also been earning a higher rate of interest in euros than it would have in dollars.

At the time of the change the UN issued a report saying that the move could cost Iraq up to £270 million. Independent experts questioned the value of buying into a plummeting currency.

'It was seen as economically bad because the entire global oil trade is conducted in dollars,' says Fadhil Chalabi, executive director of the Centre for Global Energy Studies.

The marked appreciation of the euro, higher interest rates, and the ability to pay mainly European suppliers in euros is believed to have made hundreds of millions for the Iraqi oil-for-food programme.

UN officials insist that this benefit helps to pay for humanitarian aid, war reparations, and the cost of weapons inspectors.